RES 5 – Rules, Ethics and Skills for Financial Advisory Services

Correct: Under the Securities and Futures Act (SFA), any entity carrying on a business in dealing in capital markets products in Singapore must hold a Capital Markets Services (CMS) license unless otherwise exempted. Furthermore, the Securities and Futures (Licensing and Conduct of Business) Regulations require that a CMS license holder must ensure client money and assets are properly segregated and held in a trust account with an eligible financial institution, even when the trading occurs on overseas exchanges. This ensures that the intermediary’s conduct remains regulated by the Monetary Authority of Singapore (MAS) regardless of the trade’s destination.

Incorrect: The suggestion that a firm can rely entirely on foreign regulations and have the client waive Singapore law protections is incorrect, as MAS-regulated intermediaries must adhere to local conduct of business rules when serving clients from Singapore. The claim that Accredited Investor status exempts a firm from all conduct requirements, such as asset segregation, is false; while some exemptions exist, core protections like the segregation of client money remain fundamental. The requirement for one-time MAS approval for every transaction over a certain threshold is not a standard regulatory procedure under the SFA; instead, the framework relies on ongoing licensing and conduct compliance.

Takeaway: Singapore-based intermediaries must maintain a CMS license and strictly adhere to asset segregation and conduct rules under the SFA when facilitating derivatives trades on foreign exchanges.

Correct: Under the SGX-DT Rules and the Securities and Futures Act (SFA), Trading Representatives have a fiduciary duty to prioritize client orders over house or personal trades. The principle of ‘Client Priority’ dictates that a TR must not trade for their own account or the firm’s account when they have an unexecuted client order in the same direction. Furthermore, orders must be executed promptly and accurately to ensure market integrity, and confidentiality must be maintained to prevent prohibited practices such as front-running or insider trading.

Incorrect: Delaying an order for research purposes is inappropriate as it violates the requirement for prompt execution and may disadvantage the client in a fast-moving market. Executing a proprietary trade before a client trade to ‘test the market’ is a form of front-running and a direct violation of client priority rules. Aggregating orders without prior consent and a clear allocation policy is a breach of SGX-DT conduct rules regarding the fair treatment of multiple clients and transparency in order handling.

Takeaway: Trading Representatives must strictly adhere to the principle of client priority and prompt execution while maintaining confidentiality to uphold the integrity of the Singapore derivatives market.

Correct: Under Section 219 of the Securities and Futures Act (SFA), liability for insider trading extends to any person who possesses information that is not generally available, provided that the information is material (price-sensitive) and the person knows, or ought reasonably to know, that the information is not generally available and is material. Unlike Section 218, which specifically targets ‘connected persons’ (like directors or employees), Section 219 applies to ‘other persons’ (often referred to as tippees), making the dealer’s lack of a formal connection to the firm irrelevant to the prohibition.

Incorrect: The claim that liability only applies to connected persons is incorrect because Section 219 specifically addresses individuals who are not connected to the corporation but possess inside information. The suggestion that fiduciary duty to a client provides an exemption is false; the SFA does not provide a ‘client-interest’ defense for trading on inside information. Finally, the source of the information (social acquaintance versus a director) does not matter under Section 219 as long as the recipient knows or ought to know the information is price-sensitive and non-public.

Takeaway: In Singapore, insider trading laws under the SFA apply to both connected persons and any other person in possession of price-sensitive, non-public information who knows or ought to know the nature of that information.

Correct: Under the Securities and Futures Act (SFA) and the MAS Guidelines on Fit and Proper Criteria, an individual must be at least 21 years old to be an appointed representative. In addition to the age requirement, the individual must satisfy the fit and proper criteria, which include honesty, integrity, reputation, competence, capability, and financial soundness, as well as meeting minimum educational requirements (such as GCE ‘A’ Level, a diploma, or a degree).

Incorrect: The suggestion that a university degree overrides the age requirement is incorrect because the minimum age of 21 is a statutory requirement for appointed representatives under the SFA framework. The claim that an individual must be a Singapore Citizen or Permanent Resident is incorrect; while they must generally be resident in Singapore, they can hold valid work passes (such as an Employment Pass). The idea that an 18-year-old can be appointed with a letter of guarantee is incorrect as the SFA does not provide for such an age-based waiver for appointed representatives.

Takeaway: To be an appointed representative in Singapore under the SFA, an individual must be at least 21 years old and meet all fit and proper criteria and educational standards.

Correct: Under the Securities and Futures Act (SFA), ‘dealing in capital markets products’ is a regulated activity. This includes inducing or attempting to induce any person to enter into an agreement for the purpose of acquiring or disposing of capital markets products, such as derivatives contracts. Any entity carrying out this activity in Singapore must hold a Capital Markets Services (CMS) license unless they are an exempt person (such as a bank licensed under the Banking Act).

Incorrect: The moneylending license is governed by the Moneylenders Act and does not provide any ‘carve-out’ or exemption for regulated activities under the SFA. The Financial Advisers Act (FAA) governs the provision of financial advice, but the execution and facilitation of derivatives trades fall under ‘dealing’ in the SFA. The requirement for a CMS license for dealing in capital markets products is based on the activity of dealing itself, regardless of whether the firm holds client margins or uses a third-party clearing member.

Takeaway: Entities facilitating derivatives trading in Singapore must obtain a Capital Markets Services (CMS) license for dealing in capital markets products under the SFA unless a specific exemption applies.

Correct: Under the SGX-DT Rules and MAS Guidelines on Risk Management Practices for Algorithmic Trading, Trading Members are required to have effective pre-trade risk management controls. These include price collars (which reject orders outside a certain range) and order size limits. These controls are essential during high volatility to prevent erroneous or destabilizing orders from entering the market, and they must not be bypassed even when other processes like sanctions screening are under pressure.

Incorrect: Suspending sanctions screening would violate the MAS Notice on Prevention of Money Laundering and Countering the Financing of Terrorism. Widening price filters beyond exchange thresholds or bypassing them would increase the risk of an unorderly market and violates the requirement for robust risk controls. A single firm cannot unilaterally demand the SGX halt trading for the entire day based solely on that firm’s internal risk limit breaches; the SGX manages market-wide halts based on its own regulatory framework and Dynamic Circuit Breakers.

Takeaway: Trading Members must utilize pre-trade risk controls like price collars to maintain market integrity during volatility, ensuring these safeguards are never compromised for execution speed.

Correct: Under the Securities and Futures Act (SFA), MAS has the authority to supervise the conduct of CMS license holders. If a firm fails to address internal audit deficiencies, MAS can issue written directions to the license holder to take specific actions. This is part of MAS’s role in maintaining market integrity and ensuring that intermediaries have robust systems and controls for derivatives trading and reporting.

Incorrect: Revocation of a license is a severe enforcement action and is not an automatic response to a single remediation delay. While SGX is a self-regulatory organization, MAS retains direct supervisory authority over CMS license holders and OTC derivatives reporting requirements. MAS’s supervisory mandate includes operational risk and compliance systems regardless of whether a specific financial loss threshold to retail investors has been met.

Takeaway: MAS exercises its supervisory authority under the SFA by issuing directions to ensure that CMS license holders maintain robust systems and rectify internal control deficiencies promptly.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations, specifically the Second Schedule, an exemption from the requirement to hold a Capital Markets Services (CMS) license is provided for persons who carry on business in dealing in capital markets products with institutional investors or expert investors only. This exemption recognizes that these classes of investors possess the necessary expertise and resources to protect their own interests without the full suite of regulatory protections required for retail investors.

Incorrect: Option b is incorrect because the SFA exemption for dealing with institutional investors is not contingent upon licensing under the Payment Services Act, nor is it limited by a specific SGD 50 million turnover cap. Option c is incorrect because dealing exclusively with accredited investors does not provide an automatic exemption from licensing in the same way dealing with institutional investors does; furthermore, accredited investors cannot simply waive all conduct requirements to create a licensing exemption. Option d is incorrect because the SFA does not require an exempt entity to register as a ‘Restricted Derivatives Dealer’ or meet a specific SGD 2 million base capital requirement to qualify for the statutory exemption under the Second Schedule.

Takeaway: Entities dealing exclusively with institutional or expert investors are generally exempt from CMS licensing requirements for dealing in capital markets products under the SFA framework.

Correct: Under Section 208 of the Securities and Futures Act (SFA), bucketing is strictly prohibited in Singapore. Bucketing occurs when a person purports to execute an order for a derivative contract but does not actually execute it on a futures market or in accordance with the rules of a futures market. Even if the client receives the market price, the act of not routing the order to the exchange while pretending to have done so is a criminal offense. Legal consequences include heavy fines and imprisonment for the individuals involved, as it undermines the transparency and integrity of the centralized marketplace.

Incorrect: The suggestion that price improvement justifies the practice is incorrect because bucketing is a conduct-based prohibition that does not depend on whether the client suffered a financial loss. There is no de minimis threshold or order size (such as 10 lots) that exempts a firm from the prohibition of bucketing under the SFA. Furthermore, bucketing is not a legitimate off-market transaction; legitimate off-market trades like Block Trades or Exchange for Physicals (EFP) must still be reported to the exchange according to specific SGX-DT rules, whereas bucketing involves a total failure to execute the trade on a recognized platform.

Takeaway: Bucketing is a criminal offense under the SFA that involves the non-execution of client orders on an exchange, regardless of the price provided to the client or the size of the order.

Correct: In Singapore, Market Makers (MMs) on the SGX enter into specific agreements that mandate they provide continuous two-way quotes (bid and ask) for a minimum percentage of the trading day. These quotes must adhere to a maximum bid-ask spread and a minimum quote size. These obligations are only relaxed if SGX-DT (Derivatives Trading) officially declares a ‘Stressed Market’ or ‘Fast Market’ condition, which typically permits MMs to provide wider spreads (e.g., double the usual spread) to account for increased risk.

Incorrect: Unilateral suspension or widening of spreads based on internal risk thresholds is generally not permitted under the Market Maker Agreement with SGX, as the MM’s role is to provide stability during volatility. There is no automatic waiver based on volatility percentages; the Exchange must make the official determination. Furthermore, MM obligations typically cover the majority of the continuous trading phase, not just the opening and closing routines, to ensure consistent market depth.

Takeaway: Designated Market Makers on SGX must strictly adhere to their contractual spread and size obligations unless the Exchange officially declares a state of market stress.

Correct: Under the MAS Guidelines on Fit and Proper Criteria (FSG-G01), the pillar of Honesty, Integrity, and Reputation is a fundamental requirement. Accepting excessive or frequent gifts and entertainment can create a conflict of interest or the appearance of one. This may call into question the individual’s ability to act fairly, professionally, and with integrity, which are key components of the Fit and Proper assessment for representatives in Singapore.

Incorrect: Focusing solely on financial soundness is incorrect because financial health is a separate pillar from honesty and integrity. While Continuing Professional Development (CPD) is important for the Competence and Capability pillar, it does not address the ethical concerns raised by excessive entertainment. Merely disclosing gifts in a register is a procedural step but does not automatically satisfy the Fit and Proper requirements if the nature of the gifts suggests a compromise in professional objectivity or reputation.

Takeaway: The MAS Fit and Proper Criteria require representatives to maintain high standards of honesty and integrity, which includes avoiding entertainment that could compromise their professional judgment or reputation.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations, specifically regarding the handling of customer’s money, a holder of a capital markets services license is required to pay customer’s money into a trust account no later than the business day immediately following the day on which the money was received. Since the money was received on Monday, it should have been deposited into the trust account by Tuesday. Moving it on Wednesday constitutes a breach of the ‘T+1’ requirement for segregation.

Incorrect: The requirement to segregate funds into a trust account is a statutory obligation under the SF(LCB)R and cannot be bypassed by obtaining a written waiver from a client, making the second option incorrect. While reporting breaches to MAS is necessary, there is no specific 12-hour notification rule for this particular deposit delay, making the third option incorrect. The primary regulatory issue is the failure to segregate the principal amount promptly, rather than the specific treatment of interest in a savings account, making the fourth option incorrect.

Takeaway: Licensed entities in Singapore must strictly adhere to the requirement to deposit customer moneys into a trust account by the next business day to ensure asset protection and segregation.

Correct: Under the Securities and Futures Act (SFA) and the Securities and Futures (Classes of Investors) Regulations, a corporation with net assets exceeding S$10 million meets the criteria for an Accredited Investor (AI). However, since the implementation of the AI opt-in regime, such entities must be informed of their status and must actively elect (opt-in) to be treated as an AI to waive certain regulatory protections afforded to retail investors.

Incorrect: Institutional Investor status is specifically defined under Section 4A of the SFA and includes entities like banks, insurance companies, and the Government of Singapore, but does not include private corporations based solely on a net asset threshold. While the entity meets the S$10 million threshold for AI status, it is not automatically treated as an AI; the opt-in regime requires the entity to be given the choice to remain a retail investor. Retail status is not the only option, as the entity clearly meets the quantitative threshold to be an AI if it chooses to opt-in.

Takeaway: A corporation with net assets exceeding S$10 million qualifies as an Accredited Investor under the SFA but is subject to the opt-in regime before being treated as such.

Correct: In Singapore, the Securities and Futures Act (SFA) and MAS regulations require financial institutions to perform a Customer Knowledge Assessment (CKA) for retail clients intending to trade Specified Investment Products (SIPs) like derivatives. Furthermore, MAS Notice 626 mandates strict Customer Due Diligence (CDD) to prevent money laundering and terrorism financing. Providing a Risk Disclosure Statement is also a mandatory step to ensure the client is aware of the high risks associated with derivatives trading.

Incorrect: The approach of allowing trading based on a waiver is incorrect because regulatory requirements for knowledge assessments and risk disclosures for retail clients cannot be contractually waived. Relying on self-declaration for high-net-worth status is insufficient because the dealer must verify that the client meets the legal definition of an Accredited Investor under the SFA and has followed the mandatory opt-in process. Closing an account without checking open positions or margin obligations is a failure of risk management and operational procedures required by the exchange and MAS.

Takeaway: Opening a derivatives account in Singapore requires a mandatory combination of Customer Knowledge Assessment (CKA), formal risk disclosure, and rigorous AML/CFT due diligence under MAS regulations.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations, when there is a change in the particulars of a representative (including residential address and educational qualifications) that are entered in the public register, the principal firm is required to notify the Monetary Authority of Singapore (MAS) of such changes within 14 days.

Incorrect: The suggestion that the representative must personally update the MAS portal is incorrect because the regulatory obligation to notify MAS rests with the principal firm. The suggestion that a 30-day window applies is incorrect as the statutory limit is 14 days. The claim that residential addresses do not require notification is false, as they are part of the required particulars in the public register. The idea of quarterly consolidated reporting is incorrect because changes must be reported individually within the specified 14-day timeframe.

Takeaway: Principal firms in Singapore must notify MAS of any changes to their representatives’ particulars within 14 days to ensure the public register remains current and accurate.

Correct: Under Section 197 of the Securities and Futures Act (SFA), it is prohibited to create a false or misleading appearance of active trading in any capital markets products. A ‘wash sale’—where there is no change in beneficial ownership—is a deemed violation of this section. For individuals, a conviction can lead to a fine not exceeding $250,000 or imprisonment for a term not exceeding 7 years, or both. Alternatively, MAS may pursue a civil penalty under Section 232.

Incorrect: The assertion that this is merely a technical breach of exchange bylaws is incorrect because Section 197 of the SFA explicitly defines this as a statutory criminal offense. The claim that paying commissions or trading at market prices justifies wash sales is false; the lack of change in beneficial ownership is the primary indicator of false trading regardless of the price. There is no ‘15% volume threshold’ in the SFA; any amount of trading intended to create a false appearance of activity can be prosecuted as market rigging.

Takeaway: Section 197 of the SFA prohibits wash sales and matched orders that create a false appearance of active trading, carrying severe criminal and civil penalties in Singapore.

Correct: Under the regulatory framework for Capital Markets Services (CMS) representatives in Singapore, individuals are required to complete a minimum of 6 hours of structured CPD training each calendar year. This training must be relevant to the specific regulated activities they provide. Regulatory standards do not allow for exemptions based on years of experience, nor do they allow informal activities like general news reading or unstructured internal briefings to count toward the structured CPD quota.

Incorrect: The suggestion that unstructured learning can replace structured CPD is incorrect as MAS requirements specifically mandate a minimum number of structured hours. There are no seniority-based waivers for CPD based on a clean compliance record or years of service. Additionally, the current Singapore regulatory framework for CMS representatives does not provide a mechanism to carry forward excess CPD hours from one calendar year to the next.

Takeaway: All CMS representatives in Singapore must complete at least 6 hours of structured CPD annually, regardless of their industry experience or seniority level.

Correct: According to SGX-DT Trading Rules, Negotiated Large Trades (NLT) must be registered in the Exchange’s system within a strict timeframe, generally 15 minutes from the time of the trade agreement. Additionally, the price of an NLT must be within the price range specified by the Exchange, which is typically the day’s high and low or a percentage around the last traded price, to ensure the trade does not distort market integrity or facilitate off-market price manipulation.

Incorrect: Delaying the reporting window for internal approvals is not permitted under SGX rules, as reporting must be prompt to ensure market transparency. NLT prices are not entirely discretionary and must stay within exchange-defined bands to prevent abuse. The Securities and Futures Act (SFA) definitions of accredited investors do not exempt members from the immediate reporting requirements of the Exchange’s trading rules, and T+1 reporting is insufficient for derivatives market transparency.

Takeaway: Compliance with SGX-DT NLT procedures requires strict adherence to both the 15-minute reporting window and the exchange-mandated price boundaries.

Correct: According to SGX-DT Trading Rules, the Non-Cancel phase is a specific window (typically 2 minutes) immediately following the Pre-Opening/Pre-Closing phases. During this time, the system continues to accept new orders which contribute to the calculation of the Opening or Closing Match price. However, to prevent ‘order book padding’ or manipulative behavior that could distort the indicative equilibrium price, the rules prohibit the modification or cancellation of any orders already in the system.

Incorrect: The suggestion that only cancellations are allowed is incorrect because the very purpose of the Non-Cancel phase is to prevent the removal of liquidity that has already been signaled to the market. The idea that price modifications are allowed is false, as any change to an existing order’s parameters is treated as a modification and is prohibited. Describing the phase as a total freeze is inaccurate because the entry of new orders is still supported to facilitate price discovery.

Takeaway: During the SGX-DT Non-Cancel phase, new orders can be submitted, but existing orders cannot be modified or cancelled to ensure a stable price discovery process.

Correct: Under Section 339 of the Securities and Futures Act (SFA), Singapore’s regulatory framework has extra-territorial effect. This means that even if an act is committed partly or wholly outside Singapore, the SFA applies if the act has a substantial and reasonably foreseeable effect in Singapore. A CMS licensee operating out of Singapore must adhere to the conduct of business rules regardless of where the client is located, as the activity originates from a regulated entity within the jurisdiction.

Incorrect: The idea that the SFA only applies to physical contracts signed in Singapore is incorrect because the law accounts for digital and cross-border activities through its extra-territorial provisions. Relying on an automatic exemption for overseas clients is a misconception; while certain exemptions exist for specific types of entities, a Singapore-licensed firm is generally bound by MAS conduct rules for its operations. Limiting compliance to AML/CDSA requirements based on the client’s residency or identification type (NRIC/FIN) ignores the broader regulatory obligations for derivatives trading under the SFA.

Takeaway: The Securities and Futures Act (SFA) Section 339 ensures that Singapore’s regulatory standards apply to any derivatives activity that has a substantial effect in Singapore, regardless of the geographical location of the counterparty or the trade execution site.

Correct: As a Self-Regulatory Organization (SRO), SGX (specifically through SGX RegCo) is responsible for the front-line regulation of the derivatives market. Trading Members have a regulatory obligation under the SGX-DT Rules to maintain market integrity, which includes adhering to position limits and reporting breaches. The best practice is to utilize internal compliance channels to facilitate formal communication with the SRO, ensuring transparency and cooperation which are fundamental to the SRO model in Singapore.

Incorrect: Directly reporting to MAS while bypassing SGX ignores the SRO’s primary role in market surveillance and rule enforcement under the Securities and Futures Act (SFA). Attempting to privately settle or hide breaches from the exchange surveillance team undermines the fair and orderly market objective. Seeking a waiver from the commercial business development team is inappropriate as regulatory functions are strictly separated from commercial functions within SGX to manage potential conflicts of interest.

Takeaway: The SRO model in Singapore requires members to proactively cooperate with SGX RegCo to maintain market integrity and ensure compliance with exchange-level rules.

Correct: Under Section 219 of the Securities and Futures Act (SFA), a person who is not a ‘connected person’ (often referred to as a tippee) can still be liable for insider trading. The key elements are that the person possesses information that is not generally available, that information is material (price-sensitive), and the person knows or ought to know that the information is not generally available and is material. If these conditions are met, the person is prohibited from trading or procuring another person to trade in the relevant financial products.

Incorrect: Section 218 specifically addresses connected persons, but Section 219 ensures that any person in possession of inside information is restricted from trading, meaning liability is not limited to company officers. The SFA does not require a personal profit motive or direct financial gain for a breach to occur; executing a trade for a client while in possession of inside information still constitutes a violation. Additionally, the SFA explicitly includes derivatives within the scope of insider trading prohibitions, as their value is derived from the underlying securities affected by the inside information.

Takeaway: Liability for insider trading under the SFA extends to any person in possession of price-sensitive, non-public information, regardless of their connection to the issuer or whether the trade was for a client.

Correct: Under the SGX-DT (Singapore Exchange – Derivatives Trading) Rules, specifically the Error Trade Policy, a Trading Member must notify the Exchange within a stipulated timeframe (generally 30 minutes) if they believe a trade was executed in error. SGX-DT maintains the absolute discretion to cancel or adjust trades that fall outside the ‘No Cancellation Range’ if it is deemed necessary to preserve the fair and orderly operation of the market. This ensures that market participants cannot simply rely on private agreements which might lack transparency.

Incorrect: Private settlements between counterparties without Exchange intervention are not the standard procedure for exchange-traded derivatives as they bypass the transparency requirements of SGX-DT. The trading system uses dynamic price bands to prevent the entry of orders outside certain ranges or to trigger cooling-off periods, but it does not automatically void already executed trades without a formal review process. While internal risk management might suggest a pause in trading, there is no regulatory mandate under the SGX-DT Rules for an automatic two-hour suspension of all activities by a member due to a single erroneous trade.

Takeaway: SGX-DT retains ultimate authority over trade cancellations and adjustments, and Trading Members must adhere to strict reporting timelines to address errors during volatile periods.

Correct: According to the Securities and Futures (Licensing and Conduct of Business) Regulations, an exemption from the requirement to hold a Capital Markets Services (CMS) license applies to persons who deal in capital markets products that are OTC derivatives contracts, provided they are dealing with an institutional investor (as defined in Section 4A of the SFA) and are acting as a principal in those transactions.

Incorrect: Dealing with Accredited Investors (AI) involves different regulatory requirements and the AI opt-in regime, and a representative office does not grant a license exemption for regulated activities. There is no specific SGD 50 million turnover threshold in the SFA that triggers an automatic licensing exemption for derivatives dealing. Being licensed under the Financial Advisers Act (FAA) pertains to advisory services and does not exempt an entity from CMS licensing requirements for the activity of dealing in capital markets products like derivatives.

Takeaway: Entities acting as principals when dealing in OTC derivatives with institutional investors are generally exempt from the requirement to hold a Capital Markets Services license under the SFA framework.

Correct: The MAS expects financial institutions to foster a culture where employees feel safe to raise concerns. Under Section 330 of the Securities and Futures Act (SFA), there are specific protections for individuals who provide information to the MAS or a relevant exchange regarding contraventions of the Act. Any internal policy that effectively penalizes or prevents an employee from reporting market misconduct directly to the MAS would be contrary to the spirit of these protections and the MAS’s supervisory objectives for derivatives market integrity.

Incorrect: Option b is incorrect because while the IAC Guidelines promote accountability, they do not suggest that internal channels must be exhausted before reporting to the regulator. Option c is incorrect because there is no such 30-day mandatory internal investigation rule in the SFA that precludes reporting to the MAS. Option d is incorrect because the PDPA contains specific exemptions for the disclosure of personal data for regulatory and investigative purposes, and it does not mandate internal vetting before reporting misconduct to a statutory body like the MAS.

Takeaway: MAS emphasizes that whistleblowers are protected under the SFA when reporting derivatives market misconduct, and institutional policies must not hinder direct communication with the regulator.

Correct: Under the Securities and Futures Act (SFA), ‘dealing in capital markets products’ is the primary regulated activity required for firms that wish to execute trades in capital markets products, including derivatives contracts, on behalf of clients. Since the firm intends to act as a broker-dealer for derivatives, it must be licensed for this specific activity under the Second Schedule of the SFA.

Incorrect: Providing custodial services is a separate regulated activity under the SFA that focuses on the safekeeping of assets rather than the execution of trades. Product financing involves providing credit facilities to clients for the purchase of capital markets products, which is a distinct regulated activity from dealing. While advising on derivatives is a regulated activity, it falls under the Financial Advisers Act (FAA) for investment advice, whereas the actual execution and brokerage of derivatives contracts are governed by the SFA under dealing in capital markets products.

Takeaway: To legally execute or broker derivatives contracts in Singapore, a firm must hold a Capital Markets Services license for the regulated activity of dealing in capital markets products specifically for derivatives.

Correct: Under SGX-DT rules and standard Market Maker Agreements, Market Makers are required to provide continuous quotes within specified parameters. If a Market Maker is unable to fulfill these obligations due to technical issues or other disruptions, they must notify the Exchange immediately. The Exchange has the authority to grant temporary relief or waivers from these obligations based on the specific circumstances and market impact.

Incorrect: Suspending activities without notification is a violation of the Market Maker’s agreement with SGX-DT, as the Exchange needs to manage market expectations and transparency. Prioritizing one parameter (size) over another (spread) unilaterally is not a recognized regulatory procedure; both are part of the core obligations. Contacting the Monetary Authority of Singapore (MAS) for a liquidity injection is incorrect because MAS does not provide operational liquidity for individual market-making technical failures; this is an exchange-level compliance and operational matter.

Takeaway: Market Makers on SGX must maintain immediate communication with the Exchange regarding any inability to meet liquidity obligations to ensure market integrity and seek formal relief.

Correct: Under the Securities and Futures Act (SFA) and the Representative Notification Framework (RNF), the principal (the CMS license holder) is primarily responsible for ensuring that its representatives are fit and proper. A robust due diligence process is the most effective control because the principal must certify to MAS that the individual meets the Fit and Proper Guidelines, covering honesty, integrity, reputation, competence, capability, and financial soundness, before the appointment is finalized.

Incorrect: Relying solely on self-declaration is insufficient as the principal has a legal obligation to independently verify the representative’s fitness. Allowing an individual to perform regulated activities during a probationary period or while a notification is still being processed by MAS is a breach of the SFA, as an individual must be formally appointed and, in most cases, appear on the Public Register of Representatives before they can legally conduct regulated activities such as derivatives trading.

Takeaway: The principal firm is legally responsible for conducting thorough due diligence to ensure a representative meets all Fit and Proper criteria before notifying MAS under the Representative Notification Framework (RNF).

Correct: Under the Securities and Futures Act (SFA), bucketing is strictly prohibited. It occurs when a person purports to execute an order for the purchase or sale of a derivative contract but instead takes the opposite side of the order for their own account or matches it internally without using the exchange’s facilities. This is considered a serious market misconduct offense in Singapore, and under Section 204 of the SFA, individuals found guilty can face significant fines and imprisonment, while the firm may face civil penalties and MAS enforcement actions.

Incorrect: The approach in option b is incorrect because price improvement does not justify bypassing the exchange; the SFA requires trades to be executed through the proper regulatory channels to ensure market transparency. The approach in option c is incorrect because bucketing is a statutory offense under the SFA, not merely a technical breach of exchange rules. The approach in option d is incorrect because the prohibition on bucketing is a matter of market integrity and public policy; it cannot be waived by private agreement, even for accredited or institutional investors.

Takeaway: Bucketing is a criminal offense under the Securities and Futures Act that undermines market transparency and is strictly prohibited regardless of price or client consent.

Correct: According to the MAS Fit and Proper Criteria (FSG-G01), the assessment of ‘Honesty, Integrity, and Reputation’ includes whether the person has been the subject of any proceedings of a disciplinary or criminal nature. A composition of an offense under the SFA is a relevant proceeding that must be disclosed. Furthermore, the failure to be candid and truthful in providing information to the firm or MAS is itself a factor that can lead to a person failing the fit and proper test.

Incorrect: The suggestion that a materiality threshold applies to compositions of offenses is incorrect, as the criteria emphasize the nature of the conduct and the duty of candor rather than the dollar amount of the penalty. The claim that only court convictions are mandatory is false; the MAS Guidelines explicitly include being the subject of investigations or disciplinary proceedings. Delaying the report until an annual declaration is inappropriate when a potential breach of fit and proper status or a failure to disclose material information is identified.

Takeaway: The MAS Fit and Proper Criteria require full and candid disclosure of all disciplinary proceedings, including compositions of offenses, as they are critical to assessing an individual’s honesty and integrity.